Illiquid Stock - Trying To Bluff

I've been playing this relatively illiquid midcap stock. 70% of float is in hands of large conglomerates that don't really trade it and there's one market maker who dominates the trading in it (algo-aided)

Anyway. I have some bids in it, right. Then lunch time, out of the blue, some joker sends a limit order to sell 5'000 into the live order book (it's traded 150 shs at this point). He/she clearly had the wrong stock, cos this one was trading in the mid 400s and the limit on the 5000 to sell was at 77 or something like that. Completely off.

The order took out 560 shares or so. 300 mine. Then the stock was stopped limit down 2%. The sell order was then retracted. At that point I was sure that it was a mistake. Someone mistyping a ticker. I immediately put limit orders in the book where I'd bought stock to protect my price.

In some cases the sell order could attract further sell orders, as a lemming effect sets in. That's why I immediately put in buy orders. To let the market maker know there's demand at those price. Also anyone with a Bloomie can see what was on offer at what price to get the stock stopped. So I was pretty confident the trader who entered the sell order would quickly cover.

But he didn't. He just put bids in around where he'd sold. So I bid the stock a bit higher. Nothing happened. Suddenly I get hit and am now holding 500 shs. Decided to take out the nearest offer and print a .8% higher price (2-3% above where seller had knocked out his shares) - holding 620 shs. That finally did it. The algo trading machines slowly started putting in bids now (alongside where I had been biding). 10-20 minutes not much happened. Then I saw larger bids coming in and started knocking out the shares I'd been dealt. The earlier mistaken seller was biding I was sure, as it wasn't the market makers usual size.

All in all just over 1k for my troubles. But interesting to "play" against a real human.

Blog-Writing Saved Me Serious Money

I'm pretty sure that if I hadn't written down my rational/reasons for being stuck in the recent long EURUSD trade I would not have received the feedback that helped sway my decision to cut the loss.

If I hadn't, my loss would now be approx. 3 times what I realized and I'd probably be out of action.

So something very good can come of communicating to others the predicament one is in. Of course it's not good for the ego to write about a position eating away equity, but I now believe it's for the best. It helps to share. Like Christmas.

Sold @ 1.47567 (-752.8 pips final)

Sold @ 1.47567 (-752.8 pips final, i.e 3 lots @ -251)

After a big loss they say one should keep out of market to avoid

revenge trading. I'll keep that in mind.

Improved prospects for the USD (says Barclays)

Thought this was interesting. I concur. Only big question is: Has this USD rally just started last Friday or am I going to get chance to offload my lots at 1.50?!

"2009 has been a perfect storm for the USD. The abatement of general global risk aversion and the relative US monetary/fiscal policy stances contributed importantly to the sharp decline of the USD. In our view, it will do better in 2010 as some of these factors become USD neutral or even positive. That said, we are not forecasting a major USD rally (which would require an aggressive Fed tightening cycle, a structural shock like the IT revolution, or a major financial crisis). What we are looking for is a limited USD rally that will play out largely during H1 10." (David Woo @ Barclays)

source: Barclays Capital Global Outlook published 10th Dec 2009.

Dead As A Dodo | - 900 pips (cumulated with recent -300)

This isn't how it was suppose to go :(

Haha ;) But it's the game. Mustn't hate the other players (for selling, when I bought).

Very good reasons to sell EURUSD were:

- Greece debt rating weighing on sentiment

- Brilliant jobless numbers in the US

- A run-up that was really impressive

- Arab concrete desert aka Dubai

Now we're at 1.47. I bought (!) at 1.50 (average).

Weird is: I can't bring myself to sell EURUSD. But I'll have to, otherwise I'll get a margin call Friday as I'm allowed 33:1 leverage over weekends but 100:1 during week.

All I have to consider now is:

- Do I sell whole lot (3 lots) and realize the loss

- Sell 1 lot so that I'm clear for the weekend

- Give up FX (!) :)

I'd love to tell myself the market overreacted to this crumby little Dubai and Greece. But then again I'm pretty sure US isn't as bad as everyone is making out.

Sentiment has changed. The stock market is fair value + 20% I reckon (based on Jeremy Grantham at GMO). The dollar could see another upmove by 4-5% by x-mas. Which would wipe me out.

Hm. I don't know. I really don't. Take what I have left and run and come back after x-mas might be smart. But I'm not very smart :D

Wrong Way | - 300 pips

Guess I'm kinda on the wrong side of this movement.

Still haven't covered. My average price is now close to 100 pips away (on 3 sweet lots).

I wonder if we go back to 1.50 beginning of next week or if it crashes to 1.475?

Stay tuned. :S

Image below incl. yesterdays purchase ....

Flat Morning | +1.3 pip

Total rubbish. :) Watch yourself lose close to 20 pips and take 1.3 pip profit. Job not well done. Good thing I wasn't in with increased size. I would have totally stressed myself out.

Quick Take On Econ Situation

Just been checking out some graphs of ISM Manufacturing. This liquidity based surge seems awfully prone to some kind of flatlining (at best) or correction (at worst). But that's just my charting sense talking - the one that loves shorting into sharp rises!

Employment has been lagging according to Haver (where I nicked the graphs). And I still hear of layoffs. So the consumer oriented economies can't really take off anytime soon can they.

I have a bit of a negative bias right now. I mean how much better can econ news get with Greece, Baltics and Dubai in the crapper one part of me says. But China and India the gorillas to watch I guess. I did read the chinese business sentiment survey also is off Oct highs. Little warning signs.

Dec 1 - Day Recap | +9.5 pips

Net 9.5 pips for the day.

Churning....

Commercials | +2 pips (1lot)

Commercial brake length trades are so easy on the nerves....

Winter Sleep Mode | +5.7 pips (1lot)

P&L: +5.7 pips

Duration: 92 seconds

Only trade in last 48 hours. Conviction missing I guess....

I've decided I'm more interested in watching an episode of "Rules Of Engagement" right now :D But will keep my eye open for some volatility....

Trade Recap

Decent week. But as I've said before and how this chart makes painfully obvious, these many small positive days and no losing days are good for morale, but they lack real effect on bottom line.

I need some +1k days now. I will get those by increasing size to 3-4 lots or holding onto winners longer.

This weeks trades:

**********************

Five trade ideas; 12 trades

99 pips profit (based on 1 lot, but 2x I traded with 2 lots...)

- 1.5 pips roll cost

If I increase to 3-4 lots I'll need 6-8 lots total on "stand-by" to continue with my averaging.

Keep in mind

what I just found at forexproject.com :

It takes years to become a trader and I can’t even say that for certain. I’m still not there but I’m still around and giving myself at least 5 years. If it doesn’t work out for me or you after 5 years, just think of the countless people who have gone to college and have never entered into the field of their degree.

EURCHF - 15067-94 | + 27 pips || More On Intuition & Gut-Feel in Trading

Duration:
15.5 hours (had trouble doing the math)
7 of which sleep.

Idea: If SNB intervened around 1.5030-60 less than 24 hours before - why not again today?
But no intervention seems to be going on really... so I thought I'd close the trade.

P&L: 27 pips

[Edit: After reading the above I really must question my logic - if SNB intervened below 1.5060, why would I buy above? Goes to show that mostly my impatience gets in the way!]

**************************************************************************

Follow up on intuition I found at forexbirds blog:

"Back in 2007, although I had allready 2 and half years of forex trading experience on my back, I was still hooked on indicators, "systems" and methodologies found on technical books and the internet. It took me another two years to emancipate myself from all this stuff and to evolve towards simplicity : all I need now is to feel the price movement. Nothing more, nothing less. No indicators, no systems, no trading teachers or gurus. I still have indicators on my charts but I don't pay much attention to them anymore. Trading, scalping especially, is pure geometry."

******************************************************************************

This is an extract from an article on marketwatch.com:

"Last Friday, furthermore, Richard Russell, editor of Dow Theory Letters, who just a few days previously had declared that the intermediate and primary trends were now bullish, changed his mind. "I had no specific reason to do so," Russell explained to his clients, "except for my gut-feeling." "

Interesting no?!

******************************************************************************

Spike No2 | +10pips

Chillin' in bed watchin a french news programme (antenne 2). My notebook close by. Watching 1.5094 level. Suddenly it broke out and went completely loco. Didn't know why. Still don't. But 1.5140 was my sell level. Then less than 20 seconds later it was 10 pips lower. Thank you market.

Squeeze To 1.5090 | +13.5 pips (x 2 lots)

That downward correction of US GDP figs changed market sentiment yesterday I reckon. So even though I had felt good being short 1.4980 yesterday and day before, today after reading reports from banks about it, I felt as though this weak dollar might just have some room to run short term. I had 1.5060 in mind. But when it got to 1.5053 I couldn't resist and sold some. Not best idea. Especially as I picked my entry just before a 30 pips squeeze. But I just couldn't believe we wouldn't linger around big figure 1.5000 bit longer?! I guess everyone did.

Doubling up saved the day.

+13.5 pips (x2) = 27 pips the reward for the risk

Once again the position was showing me -50pips (on 1 lot - 25pips on 2lots :P) though at worst point. So again I've been lucky. How much longer can this last....

In The Black - Reflection

In the black again for the first time since summer.

Maybe an early x-mas gift from the market gods...? Or maybe just teasing me so that I risk more...

As you can see here from my gainers and losers over the past 6 months I'm someone who is right 4/5 of time. Only problem: As I don't use stops and tend to get overconfident the losses in the 1/5 explode and eat up the 4/5. It's like a cancer taking over.

As long as I don't have winners that "explode" I'm not on the right path to success.

Luck And Stuff | +17.2pips

This trade went ideally. Had my level (1.4980) I'm comfortable being short EURUSD. Then went out, come home and find 17.2 pips smiling at me. ;)

18hour wait for wanted outcome | +7.5 pips on 2lots

1st lot EURUSD I sold @ 1.4933, 2nd @ 1.4987

average 1.4960

Then I waited and waited... and then waited some more. Until finally after

18 (eight-teen) hours they showed me 7.5 pips ....

Had been down close to 30 pips (on average price) - so once again I've been lucky to get away.

Revisiting My Trading Past (graphs)

Just wanted to cheer myself up a little after looking at my shity 2009 performance :D so I looked at couple of good years I had with my PA. Luck had more to do with it than anything else in 2004 though. And I knew it then and know it now.

2006 turned out to be catastrophic year. But this posts about what gets us so far as to think we're market wizards.

Each blue bar is either net result of a position or in some cases like 2004 -20k bar: all the trades in that stock consolidated (even though it was over 3months of agony!)

PS: Reason for 2004 PA being 60k and not 39k - mainly income revenue I put aside for trading.

My Daily P&L Since May (Graph)

65 days of trading 7 losing days (10.7%). 58 winning days (89.3%). And STILL NET LOSER. I should fire my risk controller?! :P

[Edit: Just noticed it's more like 12 (18%) losing days and only 50 (82%) winning days - missed those small losing days....)

For anyone interested in my adventure since the beginning:

Today I am down close to 200$ since the beginning.

Keep in mind these are only the actual days I had any gain or loss. Especially since Aug there have been pauses with many days of no trading...

[top chart reflects correction of 2nd chart (without color) . On days where I traded several currencies I have several bars each reflecting the specific P&L - can't be bothered to net that just yet.... but that would give me "cleaner" graph I guess... didn't happen that often though....]

Too Much Deliberation | +3.7 pips

Argh. -18pips before it turned and showed me 3.7 net pips profit.

Kind of stupid. I really must change this daft habit of taking small profits and risking large losses... After I bought at 1.4822 I read Saxo Bank sees EURUSD 1.45 by christmas.... :S That made me happy to get out at all with a profit :)

below is my initial post for today which led to the above trade

=========================================================

Too bad there's no prize for having good ideas in fx.

My post before going to bed yesterday would have been such a good thing to trade on....

No point living in the past though....!

SO....... Where from here.... consolidation and maybe re-test of 1.4850 something I should play?

Must Say Am Tempted To Sell EURUSD...

1.4920-35 resistance.....?

Edit: 20.Nov 13:16CET - The price is now 1.482 - I didn't sell. I didn't trade. I AM pissed.

Maybe I should just advise and not trade :D Actually pulling the trigger seems not to be thing for me at moment, but strategy more so?! Damit :D

Walking On Ice | +4.1 pips

Liked the level. Bought. Watched it go 14-15 pips against me.

Took profit at net +4.1 pips.

Duration held: 15min

Maximum underwater = nearly 4x my actual profit.

Considered averaging at 1.4850, but thought I'd let it fall 20 pips before I do anything.

But this once again showed me I probably need 80% winners to survive with my trading style (for when I do get stuck with a loser it sure as hell won't be 5 pips!).

Three Small Trades | +11.4 pips

Trade recap for the day. (see this post aswell)

Three trades

Pips & Duration held

3.7 6.5 min

3.8 7.0 min

3.9 pips 26.0 min

net +11.4 pips

average duration held 13 min

Sell, Nap, Buy

Put on the trade (sell EURUSD @1.49585) and went for a nap. Woke up dreaming/imagining it's at 1.4950. It was around 1.4954. Sold anyway. Now it can fall back to 1.4900 for sure :)

P&L: 3.9 pips net

Duration held: 26min

Didn't do the 2-3 lots thing yet. Can't yet. Mental barrier.

Edit: 14.32 CET - Already dropped another 10pips - Should have just turned an napped further till I dream it's 1.49 :D

Edit: 15:05 CET - Now it's dropped 30 pips since I went flat :S But I can't be mad at myself. I just am too stupid to hold onto positions. My nature :)

Edit: 15:32 CET - Well - quite surprised with that move back into 1.4970 area. Sold some for another 3.7 net proift. Duration held: 6min.

Recap Of Trades Till Now (November)

Well, if you've been following my October FX trading and performance you might be starting to wonder why I'm bothering for these small amounts. I've been asking myself that anyway. But yesterday I watched a film called "The Age of Stupid" which puts in perspective even such amounts. And in turn makes me question the value for humanity of such a past-time or hobby.

So Novemeber 3 trades worth a profit of 130$. I believe my broker made 18$ on each of those round trips. Maybe I should just start with 6 lots instead of 1. Might give me a heart attack but bottom line would improve dramatically. Then again maybe it's cos I only bet such small amounts that I can trade in the way I do at the moment (i.e. not lost on a trade in 2 months and rarely even having strong enough conviction to trade in the first place).

I'm still close to 400$ underwater since the start of this FX experiment.

Bernanke Talk Triggering Stops - Small Trade

Bernanke was just commenting some BS about wanting strong dollar. I didn't have my trade software open and was looking at the quotes on another webbased screen. It was suddenly 1.4904 after being 1.4970- I thought for a minute my brains gone soggy or eyes bad. So by the time I found reason why it had taken hit and started software it was 1.4930! Then I watched it twiching backward and forward - up 5-6 pips in 1 second , next few seconds down 12 pips. That got me bit nervous, but got out with 7.3 pips net. Which is fine by me. Beggars mustn't be choosers :D

I'd better not go into how I felt like shorting 1.4984 this morning and didn't. Should trust my bloody intuition more often!

Trading Psychology: Intuition & Gut reactions

[Edit 27.NOV.2009: Just collected some more evidence in THIS post regarding gut-feel and intuition]

To quickly get straight what intuition means: I for one use the word as shorthand representing a complex set of interrelated observations and arguments that are mostly non-cognitive or somehow running in the background of our mind. Prof. Gigerenzer defines an intuition as a judgment that (i) appears quickly in consciousness, (ii) whose underlying process we are not aware of, yet (iii) is strong enough to act upon.

Of course few traders rely solely on intuition as the basis for their trading strategy. However many use it I believe. The explanation for putting on certain trades would be very time-consuming to express rationally especially with traders in a stressed environment.

I read in a book that "...it is effectively mathematically impossible for even an expert chess player to calculate rationally all the possible moves and countermoves available to the player and his or her opponent." Yet they do so in a way. Therefore one could argue that they put to use their intuition in a very effective way.

Gut reactions are often the result of simple rules of thumb. We're not really aware of these rules of thumb most of the time and they'll be based on a simple reason often. Intuitive descisions aren't only more economical and faster but also often simply better Gigerenzer concludes.

Gut reactions are not necessarily incompatible and in some cases may even be complimentary to a good trader I believe. Simple & informal heuristics can often turn out successful in decision making studies* in unrelated fields have found.

Would be interested on other peoples point of view whether some form of instinct or intuition guides their trades aswell.

*Gigerenzer (2007) & (Hutchinson & Gigerenzer, 2005, p. 98)

Gerd Gigerenzer is a german psychologist working at the Center for Adaptive Behavior and Cognition (ABC) in Berlin & former Professor of Psychology at the University of Chicago, and John M. Olin Distinguished Visiting Professor at the University of Virginia Law School. He has been a Fellow at the Center for Advanced Study in the Behavioral Sciences in Stanford, and visiting scholar at Princeton University and Harvard University.

Step Away From The Monitor, Take Your Hands From The Mouse

It's interesting, amusing even. I knew (?!) the moment I was analysing my trade and writing my post last night that this would happen: Morning would be nicely higher. And instead of taking reward bounty from the table for what I "felt" would happen (i.e. a sprint of covering into Eur GDP no's) I literally made pocket change :(

Now the lesson has to be for me: Watch the price levels, set a exit level (maybe in terms of hours) and step away from screens, go to sleep, whatever. But be sure to just NOT WATCH IT MINUTE BY MINUTE. My inner radar is reacting to swing trading, not scalping it seems.

Even the 1.4920 level I casually mentioned saw a full two hours of struggle. Must have been important for some reason.

But no reason to be angry at myself. After all I'm taking away an important lesson for free. Things can get so much better now!

Notes:

Little squares indicate where I bought (green) and sold (red).

1st green highlighted area shows morning level

2nd shows the mentioned 1.4920 level [even though 1.4880-90 level was by far the most important of day by time spent - and I'd also written in y'day blogpost that I expect 1.4950-80 level to see a touch - didn't get that - so I must be careful not to succumb fallacious reasoning!]

Trading Psychology: Fallacious Reasoning

I've been reading a book on criminal investigation and came across a chapter that deals with what investigators should keep in mind so as not to fall into the trap of fallacious reasoning. The following is deducted therefrom and applied to trading. It mirrors what I believe to have lived though myself and also found spelled out in part over at TraderFeed over several posts.

It appears we human animals succumb to fallacious reasoning for several reasons:

a. abstract nature of premises (abstract = theoretical ; premise = proposition from which conclusion is drawn )

b. emotive quality of trading (emotive = characterized by exciting emotion)

c. mental mindset or condition (i.e. the strategies of the present and future are based upon successful strategies used by the trader in the past)

d. fixation (i.e. preconceived notions are adhered to even in the face of contradictory evidence)

e. verification bias (i.e. failure to seek disconfirmatory evidence even though trading requires the active seeking of evidence that contradicts the hypothesis for putting on a trade)

f. wanting to see taking over reasons for holding a trade versus expecting to see based on probabilities

e. intellectual and cognitive abilities of individual at hand (basically: I might be to thick to see what the deal is even if it's laid out in front of me - reminds me of math class at college)

Boredom Trade EURUSD 1.4836

Just been watching EURUSD out the corner of my eye and suddenly had the urge to buy EURUSD 1.4836 - based mainly on the fact that 1.50 is the resistance it's bouncing back of **. Didn't even have trading software app open, just watching it in a browser from time to time....

** Well that argument has just once again proved to myself the mistakes I make. I clearly am buying intuitively cos I think 1.4950-80 is on the cards Friday session and yet I just got out with only 5 pips and will probably wake up tomorrow to find it's 1.4920 or something like that.

Can't bring myself to go long now again... Darnation! At least I only held it for 8 minutes. Always look on the bright side right. (5.3 pips net gain)

My software is a bit crazy it seems. That gap (before my entry) isn't actually one, but where I started my trading app - somehow the last minutes candle gets lost....?!

Some Thoughts After Browsing Company Results

Today I've been looking at some 9m (YTD) results of companies reporting. It's interesting: certain ones like Food & Construction are actually seing revenue/sales higher yoy. Bottom line also looking good after tax and interest for them. These two I looked at tend to grow organically with little debt appetite. Companies with debt are going to be frightening ride when/if inflation kicks in H210?!

Then on the other side you have companies that are dependent on business spending like Travel Agents. This one in particular I was looking at had 800m gross profit last year and 600m this ytd. Net profit last year was 125m (EBIT was 125m also) and this year -5m (EBIT +3m). So this companies overhead/payroll is really hurting it, aka dividends will suffer big time.

I spoke to a friend in a services company earlier in the week - she's been told they need to lay off 30-50% in her team, and that she'll have to choose who. It's not a booming economy by any standards in the western world that anecdote tells me (along with the 2nd paragraph).

However china and india are growing like crazy and if you own shares in a company in that market or in a niche with low competition, this year is going to be fine (better than last year).

*yoy=year-on-year

** ytd=year-to-date (well Jan1-Sep30 in context)

Miss My Old VWAP Trading Days

Today I didn't trade. I was watching instead. Like the cheetah stalking pray. But there was no pray in my neck of the woods. Just lots of ants running around instead of anything juicy to dig into ;)

So I was surfin and readin other peoples stuff and stumbled across this site called Hard Right Edge. There were some good tips there. Reminded me of my cash equities trading days. On a good day I'd be given an order to trade "VWAP" from the point in time order was received until close (sometimes ex-close). Meaning I had to beat the average price of transactions. Those kind of trades are what I adored. You (trader, bank) guarantee to give the client VWAP and basically gamble on direction of market and that you can outguess market.

Sometimes during the session news would break and loads of volume would be created changing VWAP very fast. Say you were trading 200k shares of something worth 44.5, VWAP 44.5 and then news breaks 2.5 hours before closing and all the volume goes though at 44.1. If you're a seller you hit the jackpot cos you tend to have sold the biggest chunk by that time, if you're buyer you feel like hanging yourself when you tell the desk head. :)

Of course news is scheduled mostly so you can factor in that there will be volume coming in. Also closing had 20% of daily volume so you needed to keep chips (shs) in "reserve". I really miss that. Most banks don't even have the balls or risk appetite to offer such services anymore. Maybe afraid hedgies screw them or god knows what. [Edit: On second thoughts the guys using those trading algorithms at the large banks probably got an edge over manual VWAP traders like myself at the time? I was at a smallish risk averse bank so not sure...]

But if you get a decent size order to trade VWAP I always found it nearly impossible to screw it up - especially if you traded both sides of market actively and literally "felt" the resistance and support. Made money for the bank more times than not. Sadly one colleague in particular didn't (he was always leaning on the idea of time slicing orders, which is a big gamble) and of course cost a hefty sum compared to commission earned on that trade. Desk head got cold feet and that was the end of that fun. :(

USDCHF - 10 hours & only B/E :S

What an annoying trade.

Duration held: 10 (!) hours

Pips: 0.4 (!)

Max. red*: -240.00

Max. green*: +45.00

Realized Gain/Loss: +4.00

[* Thought about writing max. drawdown - but I'm not really sure it's right for the context - or then what I should call the point at which I was in the black....]

Well that will teach me to start a monday overmotivated to put on any old trade and only see how I feel once it's on. My only vague hope when I put on the trade was that USDCHF would move back to big figure. It never did. Just south from the word go :)

Doubling up around 1.0062 would have been wise move in hindsight. But I thought if the floor falls out and EURUSD crosses to 1.5030 I'd be in trouble.

I was actually trying something new today in some respect. I read over at TraderFeed that we often change our frame of mind as soon as we put on a trade. And I do that very often. My instinct or gut is reacting mostly to 12-48 hour resistance and breakout points. But as soon as I'm in the trade for say 30-60 min. I change my perception of what is happening or what happened. So anyway - today I was trying to sit out my hunch. It didn't work. Oh well.